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rate, Mr. Egan relied on the rate of return on the sale by a
partnership between 1990 and 1995 of industrial real estate
situated in an industrial park in the metropolitan New Orleans
area, which he adjusted to take account of the respective pro-
jected absorption periods and risks that he determined for the
various categories of the remaining unimproved real properties.
Finally, Mr. Egan discounted the prospective cash flow for each
year of each projected absorption period back to the valuation
date in order to arrive at the fair market value of the prop-
erties within each of the categories of remaining unimproved real
properties on that date and totaled each such value to arrive at
the aggregate fair market value on that date of those properties,
which he determined to be $8,026,599.
Respondent points to certain alleged deficiencies in Mr.
Egan's analysis. Respondent contends that Mr. Egan's application
of an absorption discount as part of his discounted cash-flow
analysis is not warranted when real estate is already developed
and awaiting sale to the ultimate consumer. We disagree. We
have applied an absorption discount in valuing developed lots of
real estate. See, e.g., Carr v. Commissioner, T.C. Memo. 1985-
19. On the instant record, we find that a willing hypothetical
buyer and a willing hypothetical seller would consider the rate
of absorption of similar real properties, whether developed or
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